Why Iron Ore Prices Rose Post CNY Holiday?

SHANGHAI, Feb 8 (SMM) - Iron ore futures prices extended its pre-Chinese New Year upside momentum into the first trading day after the holiday, and pulled up spot prices by around 20 yuan/mt.

SMM believes that the iron ore prices will hover at a high level in the short term for several reasons, including:

Supply: According to data tracked by SMM, 57 ships arrived at domestic main ports in January 31 – February 6. Arrivals of cargoes are estimated to stand at 8.8 million mt, down 1.39 million mt from the previous week and down 8.28 million mt year on year.

Shipments that departed Australian ports were estimated to rise 0.22 million mt week on week to 15.97 million mt, up 3.54 million mt on the year. And that from Brazilian ports decreased 1.14 million mt to 4.01 million mt on a weekly basis, down 1.65 million mt on the year. The total arrivals of imported ore decreased significantly from the prior week, and the combined shipments from Australia and Brazil also declined slightly.

Demand: The National Development and Reform Commission released the “2+26 Off-peak Production Scheme in Autumn and Winter” in October 2021 to maintain air quality during the Beijing Winter Olympics. According to the Scheme, the domestic daily output of pig iron shall be around 2.11 million mt during the Winter Olympics.

Based on the current situation, Tangshan introduced stricter environmental protection-related production restrictions starting from January 31, while those in Shandong, Henan and Shanxi relaxed compared with before. The daily pig iron output was maintained at 2.1 million mt, hence the actual demand for iron ore was basically in line with estimate.

Inventory: As of January 28, the gross stocks at the 35 ports tracked by SMM stood at 149.02 million mt, down 1.07 million mt from the previous week, mainly because the arrivals at ports dropped significantly. Meanwhile, the daily shipments of imported ore to domestic market stood at 3.09 million mt. The stocks at the ports are expected to fall more slowly during the CNY holiday when the port operation was suspended.

On the whole, iron ore supply is still slightly higher than demand. The prices are expected to hover at a high level considering the robust restocking demand after the Lantern Festival and Winter Olympics.